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Friday, 19 February 2010

From the GLG Earnings Release - Flows, High Water Marks and the Outlook for CB Arbitrage

From the Full Year Statements for GLG Partners Inc.

Noam Gottesman, Chairman and Co-CEO of GLG said : “Encouragingly, AUM flows at GLG have turned definitively positive over the past six months and looking forward, I am confident that GLG remains well-positioned to be a leading beneficiary as industry flows expand."

Conference Call Extracts on Flows, High Water Marks and the Outlook for CB Arbitrage

Noam Gottesman
“In fact, we are seeing growing interest in GLG from both existing and potential clients. Our organic net flows were positive again in the fourth quarter, after turning positive in the third quarter, following six months of stabilizing trends. Importantly, the redemption wave that crested late in 2008 now appears well behind us.

"Further, though the pacing and scale of this next cycle of inflows remain difficult to forecast, we believe it has definitely begun. It is notable that we gained several significant new client relationships in the quarter, including among others, a prominent sovereign wealth fund and a European Insurance company.

"At the end of the fourth quarter we had approximately $7.5 billion in AUM above water within 5% of high watermark, part of a potential 12.5 billion in performance fee eligible assets under management. We have another 0.8 billion in AUM within five to 10% of the respective high watermark.

"I'm strongly encouraged by the flows we have seen during the second half of 2009 and in the early weeks of 2010."

Jeff Rojek, CFO

At the end of December, we had roughly 7.5 billion out of a possible 12.5 billion of performance fee eligible AUM, above or within 5% of their respective high watermarks. These numbers include AUM, special asset vehicles and other liquidating strategies.

Broken down by strategy, approximately 3.2 billion of our alternative AUM, 0.9 billion of our long-only AUM, and 1.7 billion of our 130/30 strategies or similar AUM is above water. Also, approximately, 0.4 billion of our alternative AUM, 0.2 billion of our long-only AUM, and 1.1 billion of our 130/30 strategies or similar AUM is within 5% or less of their respective high watermarks.

Of the remaining five billion of AUM under water, 1.8 billion is in alternative strategies and 3.2 billion is in our long-only strategy. Briefly again even further 0.4 billion of alternative AUM and 0.4 billion of long-only AUM is between five and 10% of their respective high water marks. 0.8 billion of alternative AUM and 1.7 billion of long-only AUM between ten and 30% of their high water marks. While 0.7 billion of alternative AUM and as 1 billion of long-only AUM is more than 30% below the high water marks.

Q&As

(A - Noam Gottesman, Chairman and Co-Chief Executive Officer): We're very encouraged by what we're seeing in the pipeline. The inflow cycle as we mentioned, it's hard to sort of guage the pacing, the magnitude but we're actually seeing it pretty much across the board, definitely seeing a lot of alternative interest now, and whereas in the previous few months, there were some alternative but mainly traditional. But we are - we're seeing very strong flows into the Long-Short products, we're seeing strong flows into emerging market. And convertible, we're seeing very good interest in the UCITS III product,

...A large part of the 4Q flows were from sovereign investors in long only mandates.

A - Noam Gottesman, Chairman and Co-Chief Executive Officer): Yes, generally, I think, people are definitely allocating. There is no question. There is certainly an awful lot of interest, and I think they're not doing it because they're bored. I think they've got money to put to work, and alternatives definitely delivered. And I think the prospects are looking bright for the industry right now.

(Q - Roger Freeman): Are you finding that you're coming in as a result of manager substitution or are you coming in as an additional manager?

(A - Noam Gottesman, Chairman and Co-Chief Executive Officer): I think it's both. I think the people sat on their hands for much of last year. They redeemed in some places, but they sat on their hands. They're just - I'm not really seeing - it's hard for me to gauge where it's coming from, but it's definitely coming.

… The alternative assets continued to be at full alternative fees, we are not seeing any real pricing pressure there.

(Q - Roger Freeman): What are your thoughts on the convert market outlook? I think, you mentioned there was strong interest in the fourth quarter. Issuance seems to have been light so far this year relative to what people were expecting. Do you see a lot of issuance coming down the pike, and is that a key to driving returns and flows in that area?

(A - Noam Gottesman, Chairman and Co-Chief Executive Officer): I think we're still very positive on the convertible market and we were for - we have been, as you know. And it’s a market that's done exceptionally well. Our convertible funds - our convertible arbitrage funds - have continued to perform very strongly, including in January where the convertible arbitrage fund, I think, was up close to 9%.

We think issuance will continue. And we think that new deals are going to have to come cheap, and I think it's going to provide opportunities. And the volatility in the market should be very beneficial. So we do continue to feel strongly positive on it. We also believe that there would be a large M&A flow that continues, which will also drive new issuance.

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